Bank of Montreal makes inroads in ETF marketplace: Web exclusive

The iShares division of BlackRock Asset Management Canada Ltd. is currently the most popular supplier of exchange-traded funds (ETFs), according to a recent survey of financial advisors, but other firms are gaining ground.

The survey results indicated that 37% of respondents use BlackRock ETFs more often that other ETFs, followed by 26% who use ETFs from BMO Asset Management Inc. before others.

The research was conducted by Toronto-based Credo Consulting Inc., in partnership with TC Media’s Investment Group, in February and March 2015. The survey polled financial advisors who read Investment Executive and its Montreal-based sister newspaper, Finance et Investissement, both of which are publications in TC Media’s Investment Group. Among the 227 advisors who completed the survey, 123 use ETFs and 104 do not.

Blackrock and BMO are also the largest in terms of assets under management (AUM) in the industry. According to figures from National Bank Financial Ltd., of the industry’s $83.1 billion in AUM as of Mar. 31, BlackRock Canada accounted for $46.7 billion or 56%, while fast-growing BMO had AUM of $21.4 billion (26%). Next, but several lengths behind, are Vanguard Investments Canada Inc. with $4.7 billion (6%) and Horizons ETFs Management (Canada) Ltd. with $4.5 billion (5%). (All firms are based in Toronto).

However, thirty-three percent of advisors surveyed said the ETF provider they would use most frequently in the future was BMO, followed by BlackRock (31%) and Vanguard (28%). Despite strong percentage growth in AUM last year, smaller ETF providers, including First Asset, Purpose Investments Inc. and First Trust Portfolios Canada Co., did not have a high profile with the advisors surveyed.

“BMO has been making an aggressive push on several fronts,” says Daniel Straus, Toronto-based head of ETF research and strategy at National Bank Financial. “It matched the lower management fees in the industry when iShares and Vanguard announced aggressive fee cuts. It’s been a very competitive landscape in terms of pricing, particularly with the generic, index-based passive products.”

Although BlackRock is the biggest and best-known ETF provider, it has been losing market share in the past couple of years. Blackrock’s 56% of industry AUM is a fair chunk less than its 66% of industry AUM as of Dec. 31, 2013.

Straus says BlackRock has seen a fall-off in interest in its iShares S&P/TSX 60 ETF, the largest and most liquid ETF in Canada. The vehicle has been favoured in the past by large institutional investors wanting exposure to the Canadian market, but many investors have recently become less positive on resource-heavy Canadian market and reduced their holdings, he says.

However, in March 2015, BlackRock had the biggest inflows in the industry, bringing in $1.2 billion across its lineup, followed by BMO with inflows of $834 million, Vanguard ($299 million) and Horizons ($132 million). Total inflows for the industry were $2.8 billion, one of the highest months on record and second only to December 2014’s inflows of $3.1 billion.

The most popular category of ETFs for the year to March 31 was U.S. equities, with the best-selling products being those tracking the S&P 500 index, including BMO S&P 500 ETF and iShares Core S&P 500 (CAD-Hedged) ETF, according to National Bank Financial. Also popular have been low volatility ETFs, such as BMO Low Volatility U.S. Equity and BMO Low Volatility Canadian Equity, Strauss says. The best-selling individual ETF for the quarter ended March 2015 was a fixed income fund, the BMO High Yield US Corporate Bond ETF (CAD-Hedged).

“For the past few years investors have ben flocking to the non-hedged version of U.S. equity ETFs, as they’ve been bullish on the U.S. dollar relative to other currencies, but with the dollar now at higher levels the currency-neutral or hedged versions are getting more pickup,” Strauss says. “Internal equity ETFs are also seeing a resurgence in popularity with governments in Europe and Japan implementing stimulative economic policies.”

Currently, there are 10 ETF providers in Canada. The latest entrant is Questrade Smart ETFs, launched by Toronto-based Questrade Financial Group Inc. of Toronto. Questrade introduced six ETFs in early March, all tied to various indices developed by U.S.-based Russell Investments. The family includes four sector-focused ETFs and two U.S. mid-cap ETFs, and all are hedged to the Canadian dollar.

In 2014, BMO saw the biggest ETF inflows of $5.1 billion, followed by Vanguard with $1.7 billion. Some smaller firms such as First Asset Management Inc., RBC Global Asset Management Inc., Purpose Investments Inc. and First Trust Portfolios Canada Co. (all based in Toronto) all saw impressive ETF inflows as a percentage of the year’s starting assets, more than doubling their asset bases during the year.